D.N Baruah, J.:— In this reference under section 256(1) of the Income-tax Act, 1961 (for short “the Act”), the following three questions have been referred by the Income-tax Appellate Tribunal for the opinion of this court:
“1. Whether the Tribunal did not err in facts as well as in law in holding that rule 6AA which was made effective from August 1, 1981, and which was held to be substantive law by the Tribunal itself, would be applicable in respect of pending assessments as on August 1, 1981?”
2. Whether the Tribunal did not err in facts as well as in law in holding that rule 6AA which was stated to be substantive law and which was brought into the statute with effect from August 1, 1981, would apply in respect of expenses incurred on or before June 30, 1980?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is entitled to weighted deduction under section 35(1)(b)(iv) as well as under section 35(1)(b)(ix)?”
2. The assessee is a company incorporated under the Companies Act, having tea estates in various places with its registered office at Talap in the District of Tinsukia. The Assessing Officer made the assessment under section 143(3)/263/251 of the Act for the relevant assessment year 1981-82. The accounting year was 1979-80. While making the assessment in respect of the relevant assessment year, the Assessing Officer found that the assessee claimed Rs. 49,10,069 relating to account sale charges out of which an amount of Rs. 28,41,431 was towards the expenditure on maintaining warehouses in foreign countries for which it claimed weighted deduction under section 35B of the Act. According to the Assessing Officer, the maintenance of warehouses in foreign countries was not qualified for weighted deduction under the said provisions of section 35B(1)(b)(iv) of the Act, and as such, he disallowed the same. He also held that the benefit of weighted deduction under rule 6AA of the Income-tax Rules, 1962 (for short “the Rules”), read with section 35B(1)(b)(ix) could not be given to the assessee since the said rule came into effect only from August 1, 1981. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). However, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee under section 35B(1)(b)(iv) because, according to him, the assessee did not maintain any warehouse of its own or together with some other parties, but the expenses on account of hiring of warehouses were incurred by its agent in London and the assessee reimbursed the said expenses to the agent and in that view of the matter, he reversed the order of the Assessing Officer and allowed the deduction.
3. Against the said order passed by the Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the Income-tax Appellate Tribunal (for short “the Tribunal”). The Tribunal by order dated August 20, 1991, sustained the order of the Commissioner of Income-tax (Appeals) holding that the appellant was entitled to the benefit of deduction under section 35B(1)(b)(iv) of the Act. That apart, the Tribunal also considered the benefit of rule 6AA of the Rules which came into effect from August 1, 1981, specifically making provision to allow weighted deduction in connection with the expenditure on maintenance of warehouses outside India. The Tribunal further held that since the entire assessment year was yet to come to an end, the benefit of deduction was available to the assessee and accordingly confirmed the order of the Commissioner of Income-tax (Appeals) and dismissed the appeal of the Revenue. Hence, the present reference.
4. We have heard Mr. G.K Joshi, learned senior standing counsel appearing on behalf of the Revenue, and Dr. A.K Saraf, learned counsel appearing on behalf of the assessee.
5. Rule 6AA of the Rules was introduced by the Income-tax (Eighth Amendment) Rules, 1981, with effect from August 1, 1981. As per the said Rules, in order to give effect to sub-clause (ix) of clause (b) of sub-section (1) of section 35B other activities for the promotion of the sale outside India of goods, services or facilities which the assessee deals in or provides for in the course of his business shall be as follows:
(a) conducting of pre-investment surveys or the preparation of feasibility studies or project reports:
Provided that the pre-investment surveys are conducted or the feasibility studies are made or the project reports are prepared on the request in writing made by the Central Government or a foreign party to whom such goods, services or facilities are likely to be sold or provided by the assessee;
(b) maintenance outside India of a warehouse for the promotion of the sale outside India of such goods;
6. Undoubtedly this provision is a substantive law. Therefore, there is no indication from the rule-making authority that it will have retrospective effect.
7. In this connection, reference can be made to Maxwell on the Interpretation of Statutes, Eleventh edition, page 204, wherein it has been observed as under:
“Upon the presumption that the Legislature does not intend what is unjust rests the leaning against giving certain statutes a retrospective operation. Nova constitutio futuris formam imponere debet, non praeteritis. They are construed as operating only in cases or on facts which come into existence after the statutes were passed unless a retrospective effect be clearly intended. It is a fundamental rule of English law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication.”
8. Mr. Joshi has drawn our attention to a decision of the Calcutta High Court in CIT v. Bishnauth Tea Co. Ltd. reported in [1992] 197 ITR 150. In the said decision, the Calcutta High Court had the occasion to deal with the provision of rule 6AA of the Rules with reference to section 35B(1)(b)(ix) of the Income-tax Act, 1961, which provides that weighted deduction will be allowed also on such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed. By rule 6AA of the Income-tax Rules, 1962, which was introduced only with effect from August 1, 1981, the other activities as mentioned in section 35B(1)(b)(ix) have been prescribed. This rule does not have any retrospective operation in respect of the assessment year 1980-81, although the assessment for the assessment year in question was completed after rule 6AA came into force.
9. The facts of the present case are entirely similar with that case and, therefore, we fully agree with the decision and conclusions arrived at by the Calcutta High Court and hold that rule 6AA does not have any retrospective effect and its operation is prospective with effect from August 1, 1981. In view of the above, we answer questions Nos. 1 and 2 in the negative and in favour of the Revenue and against the assessee. As regards question No. 3 learned counsel for the assessee has contended that it is not necessary that the assessee should maintain an office or branch. For claiming the benefit of section 35B(1)(b)(iv) of the Act, even if the expenditure is incurred by an agent, the assessee can claim deduction of the same. In this connection, Dr. Saraf has placed reliance on a decision of the Calcutta High Court in CIT v. Usha Telehoist Ltd., [1995] 212 ITR 177, wherein the Calcutta High Court held as under (at page 182):
“The word ‘agency’ used in the section has acquired a clear and definite meaning both under law and in trade. The same meaning shall be attributed to the word in the section and not the meaning suggested by counsel for the Revenue. It is all the more so because the Legislature has deliberately used the disjunctive expression ‘or’ denoting that the meaning of the words ‘branch’, ‘office’ or ‘agency’ cannot be the same.”
10. The High Court further observed as under (at page 183):
“It is not necessary that the assessee should maintain an office or branch. The question is whether the assessee appointed an agent for the purpose of promotion of sales. The agreement in this case indicates without any doubt, that the agent was appointed for sales promotion and commission was paid. For such promotion payment has been made to the foreign agent with the approval of the Reserve Bank of India.”
11. Dr. Saraf has further drawn our attention to a decision in CIT v. Usha Telehoist Ltd., [1995] 212 ITR 177 (Cal). In the said decision the Calcutta High Court held as under (headnote):
“Sub-clause (iv) of section 35B(1)(b) of the Income-tax Act, 1961, permits a deduction in respect of expenditure incurred wholly and exclusively on maintenance outside India of a branch, office or agency. Agency is an expression of which the content has nothing to do with the preceding words ‘office or branch’. As a matter of fact, if the assessee has an agency abroad, that agency cannot refer to any independant establishment of the assessee being maintained abroad because agency always connotes the independence of the agent. An agent is a total master of himself. Hence, it cannot be said that section 35B(1)(b)(iv) enjoins that the assessee himself has to maintain an office or agency outside India. He can operate through a foreign agent. While the Legislature requires that an agency shall have to be maintained abroad, the requirement is sufficiently satisfied if there is an agent outside who promotes the sales of the asses-see's exports.”
12. Reliance has also been placed by learned counsel of the assessee on a decision reported in CIT v. Asiatic Sea Foods, [1986] 160 ITR 869, wherein the Kerala High Court held as under (at page 871):
“The expenditure incurred wholly and exclusively for distribution and supply outside India of the goods would qualify for weighted deduction so long as such expenditure does not form part of that incurred on the carriage of goods to a destination outside India. When the goods are stored in the foreign agent's cold storage, the expenditure incurred as storage and handling charges would be expenses on distribution and supply of goods outside India qualifying for weighted deduction.”
13. In view of the above, we answer question No. 3 so far as section 35B(1)(b)(iv) is concerned in the affirmative, in favour of the assessee and against the Revenue. So far as section 35B(1)(b)(ix) is concerned, we answer the question in the negative, i.e, in favour of the Revenue and against the assessee.
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